Re-Opening the Debates on Economic Calculation and Motivation under Socialism

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According to the orthodox view, a properly functioning price system
would be logically impossible under socialism because there are no
markets for intermediate goods. This is referred to as the calculation
problem. The article takes the contrary view and contends that the
absence of these markets creates no logical barrier to such a price
system and that it could function effectively as long as the motivation
or so-called human nature problem is resolved. Achieving this would
require that most workers in a socialist system desire to contribute to
the best of their abilities and find in work its own reward. Orthodoxy
is also negative on this question. However, as the article shows, there
are solid grounds for expecting the emergence of this change in work
attitudes in an industrially advanced society. Furthermore, an
economy driven by such motivation and unencumbered by capitalist
forms of property not only could have a properly functioning price
system but a superior one, as the market failure literature attests.

Posted for comments on 6 Oct 2012, 3:54 pm.

Comments (6 responses)

  • Comment by Gar Lipow


    No assumptions about human nature are required to use a bidding system similar to Lange but including intermediate goods. If incentives are needed, the same ones as under capitalism could be used. That is worker pay could be adjusted up or down according to performance, but with a minimum and a maximum, and a minimum performance standard to keep that particular job. Many people under capitalism have that incentive structure. A base salary, raises and bonuses based on performance. If your performance fall below a minimum, you are out. (Under socialism “out” would mean a new job, not unemployment.) The enterprise as a whole could be given bonuses to distribute based on how it performs by a standard very similar to what would be a measurement of profit under capitalism. But those bonuses would not be anything like the entire “profit” or even a fixed percentage of that profit. And there could be limits on discrepancies between minimum and maximum income at both the firm level and society wide.

    I agree that there are many examples that show this kind of thing is not always needed. On the other hand I think there are negative feedback mechanisms that kick in when there are zero material incentives. At any rate, I think the calculation debate can be resolved in favor of socialism even if we are agnostic as the nature of human nature, and admit humans don’t really understand humans all that well just yet.

    • Comment by David McMullen


      You raise an important point. In the transition stage markets and financial incentives will unavoidably still play a major role. However, ultimately the new society will have to be based on a fundamentally new mode of motivation. If people are not motivated differently, capitalist restoration is inevitable.

      For a short time at the very beginning, the system may well be little more than state capitalism. Perhaps, on day one the revolutionary government simply seizes most of the financial assets of the rich and tells hedge funds, banks etc to continue managing them on behalf of the new owner and enterprise executives to continue business as usual. This temporary arrangement together with mobilization of workers to counter sabotage would minimize disruption while more radical arrangements are put in place.

      Small private business would also continue for some time.

      I like your final remark – ‘humans don’t really understand humans all that well just yet’.

  • Comment by Bruno


    The paper is original and interesting, but has an insurmountable defect. If wage differential are introduced to allot workers into the different activities, unpleasant works would be paid more and pleasant works would be paid less. O.K. But how would be chosen the workers for the most pleasant and difficult activities, if many workers desire these activities? Worker pay could be adjusted up or down according to performance. If so, the distribution would be again similar to that now existing.

    • Comment by Arthur


      If a surplus of people want most pleasant jobs the pay for them would go down. That is not the same as current distribution in which highest reward goes to ownership and unpleasant jobs are lowest paid.

    • Comment by David McMullen


      Arthur is right. There is no comparison with present distribution.

      You may trade off a bit of work satisfaction for more cash because of an expensive hobby. Or you have a passionate desire to do a very popular job. A lower wage means you are paying for the privilege.

      A degree of inequity could creep in because someone who prefers a generally unpopular job would obtain an economic rent. In some case maybe this could be addressed by paying incumbents less than new entrants.

  • Comment by Norbert Häring


    References to substantiate the alleged orthodox view of the impossibility of a socialist price system are missing in the introduction.. Footnote 2 leads to the von Mises institute’s website. But with no lead as to authors or papers you will not find the promised collection of papers there. Later the author presents three arguments against a functioning socialist price system. For the first one he refers to an eighty year old Hayek-paper, for the third to two 30 year old papers by Don Lavoie. No reference for the second argument is given. This referencing is a little meager for a paper which seeks to counter some orthodox view.
    However, the price system issue is a side show anyway in the paper. In essence it is about the motivation problem in socialism, which the author argues is far less bad than is usually contended (no references).
    However, what I found lacking is a serious dealing with failed attempts at socialism. The author does that in short form from page 11 onwards. However, his conclusion that “the failure of past, inchoate attempts at socialism say nothing about its ultimate viability and a lot about the unfavorable if not impossible conditions under which those attempts were made” seems too easy to me. Not all socialist countries were backward agrarian nations. Think of the German Democratic Republic. Amoung the many over-optimistic assertions is this one: “Under socialism costs such as pollution or loss of local amenity would be internalized. No one involved with an enterprise would financially benefit from ignoring these costs”. The GDR was famous for extreme levels of air pollution, far worse than in neighboring capitalist Western Germany.
    What is entirely missing is the problem of the coexistence of capitalist systems with socialist ones, with the capitalists luring away the best people from the socialists by offering high salaries.
    Overall, I get the impression, that the author is countering excessive negativism regarding the possibilities of motivating workers in socialist systems by painting an excessively rosy picture of a socialist utopia.